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Wynn Resorts Ltd (NASDAQ: WYNN) develops, owns, and operates destination casino resorts. Wynn Resorts currently has two destination casinos at the Wynn Las Vegas and the Wynn Macau in China. Two more projects, the Encore in Las Vegas and the Diamond Casino in Macau, are under development. Wynn Resorts started producing real revenues in 2005 when its first development, Wynn Las Vegas, was opened. With the addition of the Wynn Macau, the company generated revenues of over $1.4 billion in 2006.

Macau surpassed the Las Vegas Strip as the largest gaming market in the world. In 2006, Macau brought in $6.98 billion in gaming revenues, a 22% increase from 2005. With the Wynn Macau, Diamond Casino in Macau, and 52 acres of land in nearby Cotai, Wynn Resorts is in prime position to take advantage of this growing market. Wynn Resorts targets the high end gaming customer, and high end casinos in Las Vegas have seen success. At the same time, construction of new high end casinos in Las Vegas will increase competition for that market.

Wynn Resorts is completely dependent on its only two operating casinos. Economic developments in the US or Asia (particularly China) could have a significant impact on the gaming industry and this company. Currently Wynn is well-positioned to take advantage of growth in its two primary markets. The biggest risk faced by the company has to do with the Chinese government. It's license to operate in Macau expires in 2013. At which point the government has the option of taking over their operations. Furthermore, any changes in the Chinese regulatory environment could significantly impact Wynn's business.

Contents

[edit] Steve Wynn

Developer and CEO Stephen A. Wynn originally owned Mirage Resorts. He transformed the Las Vegas Strip by building the Mirage, Bellagio, and Treasure Island casino resorts. He sold Mirage Resorts to MGM Grand in 2000, and began Wynn Resorts Ltd. Wynn’s focus is on design, atmosphere, personal service and luxury to attract the premium gaming customers. Steve Wynn is an integral part of this company’s development and potential success.

[edit] Properties

Revenue breakdown in millions
Revenue breakdown in millions

[edit] Wynn Las Vegas

The Wynn Las Vegas was opened in April, 2005 and cost $2.74 billion to construct. It is the only casino on the Las Vegas Strip to have a golf course and is the only casino in the world to have a Ferrari-Maserati Dealership. The Tower Suites at the Wynn Las Vegas is also the only casino resort in the world to garner the Mobil 5 Star and AAA 5 Diamond ratings.

  • Revenue (248 days of operation in 2006) = $1,139 million
  • Rooms = 2,716
  • Casino = 111,000 sq. ft.
  • Convention Center = 223,000 sq. ft.
  • Number of Table Games = 132
  • Number of Slots = 1,974

[edit] Wynn Macau

For many years there was a government sanctioned gaming monopoly in Macau. In 2002, the government issued three gaming licenses and ended that monopoly. Wynn bought one of three new gaming licenses in Macau and built the Wynn Macau. It was opened in September, 2006. In 2006, Macau surpassed the Las Vegas Strip, as the largest gaming market in the world. Macau is in a prime location as it is within a 3 hour flight of 1 billion people and within a 5 hour flight of 3 billion people. The government of Macau wants its city to be the top tourist destination in Asia. To that end, it is encouraging investment in casinos. Macau also attracts the large number of affluent middle class in China.

  • Revenue (117 days of operation in 2006) = 293,708 million
  • Rooms = 600
  • Casino = 110,000 sq. ft.
  • Number of Table Games = 256
  • Number of Slots = 477

[edit] Development

Wynn will be opening two new luxury resorts within the next two years, the Encore in Las Vegas and the Diamond Casino in Macau. Plans for the Wynn Diamond Suites in Macau are underway. Wynn has also applied for 52 acres of land in Cotai, near Macau.

More on Upcoming Developments

[edit] Wynn's Markets

[edit] Las Vegas

Las Vegas remains a leading US destination for gaming, conventions and tradeshows, with $6.5B in gaming revenue in 2006 and $6.8B in convention revenue in 2005. With occupancy rates for many of its newer hotels exceeding 90% it remains an attractive option for developers.

[edit] Macau

Gaming revenues in Macau totaled $1.6B in 1999 and are expected to reach $11.5B by 2008. Prior to 2002, the Chinese placed significant restrictions on the visitation of the Macau. Tourists were forced to join tour groups and were limited in the amount of currency that they could bring with them. China currently has in excess of 1.3 trillion with a savings rate of over 40%- driven by older generations. There is a strong expectation that the more consumption oriented younger generations will be a strong driver of Macau's gaming industry. Moreover, Macau is well situated: 45 minutes from Hong Kong and with a 1hr flight of over 1B people.

[edit] Trends and Forces

[edit] Interest Rates

Wynn Resorts has a debt of about $2.4 billion and its properties are highly leveraged. In 2006, Wynn paid $441 million in long term debt payments, about 29% of 2006 revenues. Cash flow from the Wynn Las Vegas and Wynn Macau are the only two sources to pay off this debt. High interest rates would make paying off the debt more difficult and reduce the cash flow available for the rest of the company, most notably the development of the Encore and expansion in Macau. Cost overruns in these developments, high interest rates and insufficient generation of cash flow from the completed resorts would all impact the ability of Wynn Resorts to meet payment obligations. This could lead to reduced financial backing for its new development and accelerated payments of the debt. In 2006, Wynn Resorts sold a subconcession to Publishing and Broadcasting Ltd. for $900 million, allowing PBL to operate casino games in Macau. This subconcession provided $900 million in cash flow and has reduced some of the risk in terms of debt.

[edit] Economic Conditions

The gaming industry as a whole is vulnerable to economic conditions. An economic downturn, especially in the US or Asia, would have a negative impact on Wynn’s revenues. In a down economy there are fewer visitors and the visitors who do come tend to spend less money. However, Wynn Resorts markets to the premium gaming customers and that market is usually less affected by economic conditions. So while an economic downturn may have a negative impact on Wynn Resorts, the company may not feel the impact as greatly as some of their competitors.

[edit] China

The success of the Macau gaming industry is largely dependent on the Chinese market and economy. The Chinese are generally high end customers which caters directly to Wynn and its high end focus. At the same time, visitors to Macau stay only one night on average. Wynn Resorts has built their resorts in Macau under the assumption that the Chinese tourists will act similarly to US tourists and start coming for longer stays. Visitors to Macau must stay for more than one day to justify the large room capacity in the Wynn Macau and its future developments.

[edit] Government Regulation and Gaming Laws

A change in the gaming laws or an increase in the gaming taxes could have a negative effect on Wynn’s profits. Macau’s gaming laws are relatively young and have few precedents. This might make Macau’s gaming more vulnerable to change. China has a large and affluent middle class, but for many years travel and currency restrictions made it difficult and undesirable for visitors to come to Macau. The Chinese government recently relaxed many of these restrictions. As a result, Macau saw a 17.6% increase in visitors, reaching 22 million, and a 22% increase in gaming revenues, with $6.98 billion.

[edit] Travel

Many of the Wynn’s customers are international or must travel to get to the resorts. Disruption of the travel industry could also disrupt the number of visitors that come to the resorts. Terrorist attacks or disease outbreaks, such as the Avian Flu, could reduce the number of customers willing to travel to the resorts.

[edit] Competition

Wynn Resorts faces intense competition in both Las Vegas and Macau. The company’s primary competitors include MGM Mirage and Las Vegas Sands. Wynn Resorts also faces competition from Harrah’s Entertainment, Boyd Gaming, Native American casinos in California, and foreign casino operators, particularly SJM and Galaxy Casino Company Ltd. in Macau. Many existing casinos attract customers with themes and attractions. Wynn Las Vegas tries to differentiate itself by concentrating on design, atmosphere, personal service and luxury. It is also aided by the great reputation of Steve Wynn.

Three new casino resorts are being built in Las Vegas: City Center by MGM, Palazzo by Sands, and Echelon Place by Boyd Gaming. MGM also expects to open the MGM Grand Macau in late 2007. Las Vegas Sands and Wynn both currently own two casino resorts each with one in Las Vegas and another in Macau, while MGM Mirage owns nine casino resorts, all of which are in Las Vegas.


More on Properties and Developments


Comparison in 2006
Casino Average Daily Rate^ Revpar^^ Occupancy
Wynn Las Vegas $287 $271 94.4%
Sands-The Venetian $239 $236 98.7%
MGM Mirage $174 $162 97%

^Average Daily Rate = total room revenue / total rooms occupied

^^Revpar = revenue per available room



[edit] References



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